Sony Adds Mandatory Binding Arbitration and Class Action Waiver to PlayStation 3's Terms of Service

Posted on September 23, 2011 by Greg Cragg

Dr. Evil-PSNSony has had some rough times recently dealing with hackers stealing customer data from them, but with Sony’s new additions to its terms of service, it seems that Sony is more concerned with defending itself from its customers than from hackers.

In April 2011, an online attack targeted the PlayStation Network (PSN), Sony’s online service for its PlayStation 3 and PlayStation Portable game consoles. Sony confirmed that personally identifiable information, including credit card numbers, were stolen from 77 million accounts, making this possibly the largest data security breach in history. The PSN was down for nearly a month, preventing millions of users from accessing online content and playing online games.

 

 

 In the days and weeks that followed, Sony came under fire on numerous fronts. First, Sony shut off the PSN to prevent any further damage caused by the theft of their customers’ personally identifiable information. Sony waited 6 days before telling its customers that their credit card information had been compromised. Further, although the credit card information was encrypted, other user information, including user passwords, was not. Sony issued an apology in the form of a few free games available for download. Government inquiries and private lawsuits followed.

In an effort to head off further lawsuits and future litigation, Sony changed its terms and conditions of use for the PSN last week to include mandatory binding arbitration and class action waivers. Mandatory binding arbitration requires that consumers submit to arbitration rather than file a lawsuit. Mandatory binding arbitration can be a viable alternative to litigation when the two parties are equal in power, but arbitrators strongly favor repeat business and rule in favor of large businesses the majority of the time. Similarly, class action lawsuits are one of the few effective tools that consumers have—or had—in holding corporations responsible for their wrongdoing. A recent Supreme Court decision allowed corporations to add class action waivers to their contracts, even when consumers had no say in the contents of the contract.

Sony’s changes terms and conditions of use is particularly egregious, because these changes apply for existing customers and not just new customers. If existing customers wish to decline these new terms, they have to send a mailed letter to Sony (and include tracking to make sure that Sony cannot claim that the letter was lost in the mail). Failing to accept the terms, with or without a mailed declining letter, results in being banned from use of PSN, which includes most of the online functionality of the PlayStation 3 and PlayStation Portable.

Sony knows that its customers have little choice but to accept these terrible terms. Sony echoes the words of Darth Vader: “I have altered the deal. Pray I do not alter it any further.”
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Class Action Waivers - Big Business' Attempts to Get Away with Fraudulent Behavior

Posted on August 3, 2009 by Bevin Allen

In a creative attempt to avoid class action litigation, big companies have been including class action waivers in the arbitration clauses of their agreements. These companies include these class action waivers in the multitude of fine print that they send their clients (think of those long agreements you get every time you apply for a new service, loan, or account). 

For years, we have seen arbitration clauses in these contracts – requiring all disputes to be settled in arbitration and not before a court or a jury. Most recently, these contracts have included a “class action waiver” in the arbitration clause which state that consumers may only arbitrate claims individually, not in a representative capacity or on behalf of the general public. Basically, these companies are trying to avoid liability by requiring individual claims, claims that they know are often too small to justify individual arbitration (and the costs associated with it). 

California law states that class action waivers in consumer contracts may be unenforceable, especially where they violate public policy (such as including the waiver in that multitude of fine print). Discover Bank v. Superior Court (Boehr) 36 Cal.4th 148, 158-160 (2005). The Supreme Judicial Court of Massachusetts recently became another state to agree with California’s holding, and held that arbitration clauses precluding class action lawsuits were contrary to the fundamental public policy of Massachusetts favoring consumer class actions. Feeney v. Dell, Inc., 454 Mass. 192, 205 (Mass. 2009) (“Allowing companies that do business in Massachusetts, with its strong commitment to consumer protection legislation, to insulate themselves from small value consumer claims creates the potential for countless customers to be without an effective method to vindicate their statutory rights, a result clearly at odds with our public policy.”)

What does this mean for you? Most significantly, it means a growing number of states are seeing through big businesses’ attempts to escape liability for their wrongs. If these waivers were deemed acceptable, it would effectively get rid of the class action procedure. All companies would include these waivers in their contracts, and the class action mechanism may die out. 

While you may not think that class actions are that helpful, think again. For example, when a credit card company receives a customer’s payment on time, but still charges that customer a late payment penalty, it is unlikely that any one individual would file a lawsuit or an arbitration claim for a late payment penalty of under $50. It’s also unlikely that a company would stop charging their thousands or millions of other customers that fee if only a few individuals filed a claim. The class action mechanism, however, provides an avenue to allow customers to stop the company’s practice of fraudulently charging these fines - not only to themselves but to all of the company’s customers. It’s a matter of principle in many instances, and making sure that the company doesn’t get away with these fraudulent practices. As more states hold that class action waivers are unenforceable, consumers’ rights are protected. 

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